Markets Reactions to Presidential Election Years and Their Winners | Thoughts From Our Financial Advisors
As we move beyond the 2024 U.S. presidential election, it may be hard to keep emotions in check. How will the outcome impact the stock markets and the portfolios of investors? While we can't know for sure if the results of this election will dramatically impact how the markets react, we can take a look at historical data from previous elections years to get a good idea of what may happen. Elections have been known to create short-term volatility; however, historical data suggests that their long-term impact on market performance is often overstated. Let's examine how markets typically act around presidential elections and how the winning party impacts how the markets react. This information does a great job illustrating why maintaining a long-term perspective and limiting emotion is crucial for investors.
Historical Market Performance Around Elections
Stock market performance around U.S. presidential elections has shown some consistent patterns, though the relationship is not always straightforward:
Pre-Election
On average, S&P 500 returns have been modestly lower in presidential election years compared to non-election years.3 The chart below depicts the average annual return in election years vs. non-election years. You may want to consider that the data set is relatively small (only 24 election years) and that of those years, the market faced other market influencing events including the Great Depression, World War II, the tech bubble, the 2008 financial global crisis and the emergence of COVID-19.
December 31, 1927, to December 31, 2023
Past performance is not a reliable indicator of future performance.
Source: T. Rowe Price analysis of data from Bloomberg Finance L.P. See Additional Disclosure.
Market volatility tends to be higher in the lead-up to elections, especially in the month prior to voting day.3 September and October often see increased volatility as the election draws closer.1 This is largely due to the uncertainty surrounding potential policy changes and their economic implications. However, it's important to distinguish between short-term fluctuations and long-term market trends.
Post-Election
Historical data suggests that stock markets often experience a bounce after election day. This is largely attributed to the clearing of uncertainty.
- Once election results are known, a major source of market uncertainty is removed.1
- The S&P 500 has typically seen positive returns in the months following an election. According to historical data from 1928 to 2020, the S&P 500 has shown positive returns 12 months after the election in 9 out of the last 10 presidential elections.4
However, it's important to note that this bounce is not guaranteed and can vary depending on the specific circumstances surrounding each election. For instance:
- In the 2008 election, the S&P 500 was down significantly (-24.2%) three months after the election due to the ongoing financial crisis, but managed to gain 1.4% one year later.4
- The market's initial reaction to an election's outcome is often misleading. In six of the last 10 elections, stocks declined the day after election day, but the drop was quickly reversed.4
These observations highlight that while post-election bounces are common, they are not universal, and other economic factors can play a significant role in market performance following elections.
Source: Morningstar Direct Edward Jones.
Past performance is not a reliable indicator of future performance.
But Does It Matter Who Wins?
Many people associated with both parties will equate their opponent winning with sentiment that “the sky is falling”. Historical data shows that the market doesn’t care which party wins.
Market Performance by Presidential Party
Contrary to popular belief, stock markets have historically performed better under Democratic presidencies, at least when looking at a shorter horizon. “The average annualized price return (excluding dividends) of the S&P 500 was 9.6% when a Democrat won and 5.7% when a Republican won. But when looking at longer-term horizons, such as 10 years post-election, results for both parties are similar, with the S&P 500 returning around 7%.”4
This chart illustrates how the Standard & Poor 500 performed in each year of each presidency from the 1928 election of Herbert Hoover through the end of 2023.
Source: Charles Schwab, Bloomberg, as of 12/31/2023.
Past performance is not a reliable indicator of future performance.
Presidency and Congress
As mentioned, the data represented is just not enough to make any kind of definitive conclusion. Other factors beyond the presidency and congressional control may play a bigger factor. With that, it may be interesting to see how the S&P has performed with each combination of President and Congress.
Source: Fidelity Brokerage Services LLC. 2
Past performance is no guarantee of future results.
Data excludes 2001 to 2002 due to Senator Jeffords changing parties in 2001. Calendar year performance from 1933 through 2022. Source: Strategas Research Partners, as of November 5, 2023.
Incumbency
While there hasn’t been much data to support one party’s presidency having a greater impact on the stock markets, one trend that does stand out is the incumbent’s result. In years where incumbent parties win, the market greatly outperforms the years where they lose. This impact is felt in the year leading up to the election and the subsequent three months. Another trend that stands out is the higher occurrence of market volatility in years where the incumbent party loses. This is maintained from a year prior through to the following year.3
Average total returns before and after election day, 1928–2020
December 31, 1927, to November 3, 2021.
Past performance is not a reliable indicator of future performance.
Source: T. Rowe Price analysis of data from Bloomberg Finance L.P.
Total returns include gross dividends and are cumulative for the specified period before and after the election. The one‑year return prior to the 1928 election was excluded from the sample because of a lack of available data.
Conclusion & One Last Point
Elections may be pivotal political events, but their influence on market performance is just one piece of a much larger economic puzzle and may be overstated. The markets have shown resilience and adaptability regardless of which party wins the presidency. Factors such as economic fundamentals, global conditions, and technological advancements play a more significant role in shaping market trends than political leadership alone. A well-diversified portfolio and a disciplined investment strategy remain key to navigating the uncertainties of election years.
Probably the most important takeaway is to invest in the market no matter which party is in control. Generally speaking, there has been growth during every combination of presidency and congressional control. By only investing during one party’s president, an investor would have severely damaged the outlook of their portfolio.
Source: Schwab Center for Financial Research with data provided by Morningstar, Inc.
The above chart shows what a hypothetical portfolio value would be if an investor invested $10,000 in a portfolio that tracks the Ibbotson U.S. Large Stock Index on 1/1/1948 under three different scenarios. The first two scenarios are what would occur if an investor only invested when one particular party was president. The third scenario is what would occur if an investor had stayed invested throughout the entire period. Returns include reinvestment of dividends and interest. The example is hypothetical and provided for illustrative purposes only. It is not intended to represent a specific investment product. Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly.
Past performance is no guarantee of future results.
See an advisor to discuss your investment strategies More Helpful Articles
1. https://www.medicaleconomics.com/view/will-the-2024-presidential-election-affect-the-stock-market-
2. https://www.fidelity.com/learning-center/trading-investing/election-market-impact
3. https://www.troweprice.com/financial-intermediary/us/en/insights/articles/2024/q2/how-do-us-elections-affect-stock-market-performance.html
4. https://www.edwardjones.com/us-en/market-news-insights/stock-market-news/market-pulse/election-and-markets
5. https://www.schwab.com/learn/story/party-usa-election-facts